Plotting a Route Through the SWIFT Service Bureau Maze
In these uncertain economic times, more corporates are beginning to turn their attention to SWIFT to deliver lower costs, greater security and improved operational risk management. A common route into SWIFT is via a service bureau that enables corporates to outsource some or all of their SWIFT connectivity requirements. However, not all service bureau offerings are the same, and this article will explore the top 10 factors that corporates should look for in an outsourced service bureau partner.
SWIFT and Corporates
For many years, SWIFT has been the sole domain of financial institutions. However, a strategic initiative of SWIFT’s has been to open up its network to corporates. The goal is compelling: SWIFT provides corporates with a multi-bank platform to exchange financial information (payments, securities orders, reporting) with their banks through a single, secure, standardised platform. The potential benefits are attractive to any corporate treasurers:
Today, corporates are concentrating on delivering value to their clients and the treasury department is focused on optimising cash flow, managing liquidity and lowering operational risk for the business as a whole. Implementing and managing SWIFT connectivity can be expensive for corporates and requires highly specialised SWIFT skills.
In order to avoid an increased IT overhead, many corporates are recognising that a service bureau is an attractive and viable alternative. Additionally, the timescales to implement SWIFT Alliance has often proved a barrier and it resulted in a slower than desired uptake by corporates, certainly from the perspective of SWIFT themselves.
With the current economic malaise, outsourcing is becoming increasingly popular in the SWIFT environment as it can be more cost effective and quicker to implement.
The service bureau concept has evolved to offer corporates the best of both worlds: connection to SWIFT without the traditional drawbacks. Globally, there are over 130 bureaus (as listed on the SWIFT website) and corporates are free to choose any one of these. Choice in the UK is limited to six providers, in North America 15, and each bureau will have its own relative strengths and weaknesses as not all bureaus were created equal.
We now explore the top 10 factors to consider when assessing which service bureau is right for your organisation:
Factors to Consider When Selecting a SWIFT Service Bureau:
A bureau backed up by experienced SWIFT resources removes the need for SWIFT trained personnel to be employed directly by a corporate. Therefore it is important to consider the number of SWIFT accredited consultants that the company supplying the bureau service has. The SWIFT website tells us that SWIFT partners have a few or as many as 11 accredited consultants. Choosing a partner with a low number of consultants could leave you open to a greater risk of problems if the resources are unavailable when you need them, or they may not have all of the necessary business and technical skills.
As SWIFT requires annual recertification for each consultant and publishes the results, it is relatively easy to assess this area. It makes sense to choose an experienced partner with the most accredited consultants in your region. This ensures that the bureau can provide the widest possible range of services across all business and technical functions. This will be vital for corporates to obtain the maximum possible benefit from any investment in a service bureau.
Closely allied to the number of accredited resources a partner can offer is the breadth and depth of expertise that backs up the bureau. SWIFT makes it easy to see which partners hold accreditations and for which functional and technical areas. Look for a company that can offer support across the widest range of SWIFTNet infrastructure solutions, the underlying technology platforms and all of the value added business solutions enabled by SWIFT.
Another advantage of a partner with a large pool of SWIFT accredited resources is that support and resourcing for projects can be scaled up or down as necessary. A single consultant may be sufficient for system tweaks or minor upgrades. Access to a larger resource pool for larger projects can ensure the project is implemented quickly and efficiently.
The level of support available can influence whether a corporate can recover from an event that interrupts normal operations. Facilities such as a rolling support capability and the ability to provide a rapid onsite response to agreed service levels are good indicators of partner quality. While the need for an emergency response may be rare having access to these resources provides peace of mind that qualified consultants are available to ensure mission critical systems can be operational again with minimal delay.
Once a service bureau has been implemented, there is a clear requirement for ongoing maintenance to ensure the bureau is operating at peak efficiency. The SWIFT environment is dynamic with periodic infrastructure upgrades or changes to messaging formats. A good partner will be able to demonstrate it has supported service bureau clients for a number of years. Long-term relationships also indicate the partner has supported clients through such initiatives as SWIFTNet Phase II, SWIFT Alliance RMA, ISO 15022 and 20022 standards.
A proactive partner is one that will provide regular updates and flag up any impending deadlines. This will ensure that mandatory projects have high visibility and a planned schedule of work can be discussed and agreed to meet project objectives well in advance.
Look for a consistent track record of working with and supporting corporate clients when evaluating potential partners. The number and type of clients supported and volume of messages delivered differs for each supplier. If you are able to take up corporate references from a company with a similar scale of transaction levels, it demonstrates that the bureau is capable of supporting high volume clients, or can be a viable option for the smaller corporate with relatively modest volumes. A proven track record in this area is one of the most valuable criteria to look for.
The business case for SWIFT is strengthened by taking advantage of SWIFT value added services, e.g. payments, reconciliation, exceptions and investigations, etc. SWIFT is committed to developing new services for the benefit of the community and a major attraction of the bureau approach is that the chosen partner should be skilled in rolling out these new services as and when they become available.
Another value added service that is useful particularly for non-bank financial institutions that engage in FX is comprehensive anti-money laundering (AML). With watchlists from different authorities constantly being updated, access to powerful AML tools is a must have for many institutions as part of a bureau offering.
Having an effective operational system is a prerequisite when connecting to SWIFT. However, in today’s global economy, the impact of systems going down for minutes or hours, should an unforeseen event occur, can be severe.
Disaster recovery (DR) planning is an essential area to be considered. Checks should be made that there is a specific DR plan that will ensure minimal impact should the bureau itself be affected by an event. There should be clear evidence of systems redundancy, backups, data replication, resilience, failover, etc.
The second layer of DR planning relates to the corporates own infrastructure that is used to connect into the service bureau. The chosen partner should provide advice and support on the client’s DR set up. Better still is a proactive partner that carries out regular DR tests with its clients.
Working directly with a company that owns, develops and supports a bureau offers the advantage of a single point of contact and responsibility. In contrast, a bank-operated bureau is typically underpinned by an external supplier service that undermines any benefit from regarding the bureau as another part of the bank’s corporate banking service. Additionally, by working with a partner that is ‘bank agnostic’ the treasury department has more freedom to change its main banking supplier.
Another aspect of an independent partner is that, much like a financial adviser that offers impartial advice across the full range of products available to a consumer, advice can be offered on best of breed complementary systems for treasury management, FX processing, cash management, etc.
This well-worn phrase from the property market also applies to choosing a bureau. As with many outsourcing options, an overseas bureau may offer the promise of lower costs. However, it is vastly preferable to choose a more local bureau. While all bureaus will offer telephone support, sometimes there is no substitute for local service. It also reduces the ongoing costs of support when an onsite visit is required and is especially important where guaranteed onsite ‘rapid response’ contracts are entered into.
The global credit crunch has left the financial stability of many companies open to greater vulnerability. A partner should be able to demonstrate financial viability and strong cash flow. Evidence of a healthy client base should provide additional reassurance; however as the demise of previously respected organisations such as Bear Stearns and Lehman Brothers shows, there are no guarantees. While every vendor or supplier carries some element of risk, taking up credit and financial checks offers some measure of protection.
Outsourcing to a SWFT service bureau can be an extremely effective and efficient method of lowering costs and introducing greater STP into the treasury department. There is no right or wrong answer when it comes to choosing a service bureau partner, however corporates will get the most benefit with the lowest risk by taking a thorough approach to evaluating the different options.
Checking out the credentials of each potential supplier using these ten areas as checklist, paying particular attention to the size of the accredited SWIFT team supporting the bureau, may provoke some uncomfortable responses but what it will definitely give you is a map to help guide you through the SWIFT service bureau maze.